Should you recommend acquiring monroe hospitality to the ceo

Reference no: EM131315585

You are the director of capital acquisitions for Morningside Hotel Company. One of the projects you are deliberating is the acquisition of Monroe Hospitality, a company that owns and operates a chain of bed-and- breakfast inns.

Susan Sharp, Monroe's owner, is willing to sell her company to Morningside only if she is offered an all-cash purchase price of $5 million. Your project analysis team estimates that the purchase of Monroe Hospitality will generate the following after-tax marginal cash flow

Year	Cash Flow
1	$1,000,000
2	1,500,000
3	2,000,000
4	2,500,000
5	3,000,000

If you decide to go ahead with this acquisition, it will be funded with Morningside's standard mix of debt and equity, at the firm's weighted average (after-tax) cost of capital of 9 percent.

Morningside's tax rate is 30 percent. Should you recommend acquiring Monroe Hospitality to your CEO?

Reference no: EM131315585

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